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Finance: What is a 12b1 fee? 91 Views


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Description:

What is a 12b1 fee? A 12b1 fee is paid on mutual funds. The fee is paid by investors and is used to market the mutual fund to other potential investors.

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Transcript

00:00

Finance a la shmoop.. what is a 12b1 fee what a clever name like why don't they give

00:09

normal names to these things like fund admin expense fee or just name it Bob [Document with Bob written at the top]

00:15

but they don't so you just have to memorize what they mean anyway

00:18

mutual funds had to bear enormous communications related expenses in the

00:23

pre computer-internet everyone has an email address era delivering gobs of [Mail man arrives at house]

00:29

paperwork snail mail to its customers it was enough expense to them that well

00:34

they frankly just hated doing it and did more or less anything they could to [Man licking envelopes]

00:38

avoid having to deliver you know dead trees so along came the investment

00:43

advisors act of 1940 which basically recognized that mutual funds did in fact

00:48

have expenses that were more than bonuses to the senior partners the 12b1

00:53

fee system allowed a fairly set and standard amount of fees to be charged to

00:58

customers so that a given mutual fund could recoup the money it had to spend [Fund statement document appears]

01:03

mailing annual reports and performance data and tax information and all kinds

01:07

of other things to its customers the 12b1 system was basically a

01:11

pass through set of charges such that the customer paid for her own paperwork

01:17

incentivizing mutual funds to actually do a good job communicating with their [Woman receiving a trophy on stage]

01:21

constituency and it let the little guy mutual funds compete against the big guy

01:26

mutual funds who already had all that infrastructure of course the biggest

01:29

winner out of this entire deal yeah it was the trees especially the ones who [Tree given a first prize award]

01:33

got in early on Google

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